Bookkeeping is defined as the recording of financial transactions. Depending on the structure of a corporation, U.S. tax laws exist that require individuals and business owners to provide proof of financial transactions when requested. A strong accounting system and accurate bookkeeping is necessary for business entities to avoid tax-related penalties.
Due to the complexity of the bookkeeping process required for maintaining a strong accounting system, skilled professionals such as a bookkeeper or accountant are often hired to fulfill this role for a business entity. With the gradual sophistication of accounting software available, computerized bookkeeping has become the industry standard. A number of accounting software programs exist to fulfill the needs of a corporation, with the more sophisticated software programs addressing larger corporations. Regardless of the sophistication level of the software however, users of these software solutions are still required to manually enter financial transaction data. Financial transactions fall into the categories of income statement accounts (i.e. income accounts, expense accounts) and balance sheet accounts (i.e. Accounts Receivable and assets, Accounts Payable and liabilities, equity). The combination of income statement accounts and balance sheet accounts comprise the complete record keeping of financial activity inflow and outflow for a business entity. For each financial transaction to be recorded correctly there is a minimum amount of data fields that are required, and many software programs have taken this into consideration. This minimum is thus reflectively defined depending on the particular accounting software used.
The bookkeeping process involves recognition of the type of document, which include physical documents that vary in paper size, data density, and data location as well as electronic versions of these documents. Once the type of document and therefore the corresponding financial transaction types for that document are identified, a single or multiple financial transactions can be correctly posted. Each financial transaction has a set number of different data fields that need to be entered. For example, an invoice that a business would send to a customer requires a date of the invoice, an amount of monetary funds due, the name of the paying customer, and the account code that matches the type of income the business is receiving. The data fields fall in two categories, those that are a direct transcription from the financial document, such as amounts, dates, names, and those that are supplemented by a bookkeeper, such as account codes, memo fields, references numbers, and breakdown between principal and interest, taxable and nontaxable amounts, and other such categorization. Complete data entry of financial transactions involves more than directly transcribing any relevant financial transaction data from the corresponding financial document. However, much of the manual data entry that is done by the bookkeeper can be automated by software.